No Interest

" Session upon us the government is taking drastic measures to keep the country from falling into the abyss. Interest rates slashed to 1% it has never been lower than 1% in the history of our nation. Now there's the looming Specter of deflation that cycle of falling prices shrinking profits more job cuts less spending. And it just keeps going. With the fate deflation fears sweeping the markets and fact evidence of deflation all around us. Will the Fed go even further and dare we say drop interest rates two point five -- 2. That would basically -- free loans from banks but then. Could such a move get things back on track or make them worse when it's now -- senior financial analyst for Bankrate dot com. Greg McBride % interest it sounds like a car promotion."

" Certainly guys that I 1% rate that we enduring now and that we saw -- and in 2003 to 2004. He's not the stopping point then a likelihood is that the Fed will cut rates further the question remains just how loaded they go to they go all the way to zero. And they do do a symbolic gesture -- to go down that point 5% to make that. I think the odds are pretty good that they're going to continue to go lower we're not done 1% well but."

" But you know doesn't that create a whole new set of problems is that it is if you've been using a ranch for all these years. And the -- has been working great but if you use it down to nothing it's back in the toolbox and unavailable to you. Oh well here's the thing is so many people have claimed that low interest rates are to blame for getting us into this mess and it's very ironic that. Ever lower interest rates seem to be part of the solution yes and cutting rates further and especially going all the way to zero. It uses up the ammunition that the Fed has left now to counter argument that is. That the Fed has pledged time again they'll do whatever it takes into real restart the economy. -- cutting interest rates is -- part of that toolbox in the -- they're not in a position where they're able to sit back they really have to throw everything at it. And that may mean that they do what they have never done before and that is take interest -- well below -- 1% want this race that we're talking about is the rate is the interest that banks charge each other for short term loans. But it does filter around everywhere and what what would -- a move like that mean to say. Credit cards or two mortgages or you name it what would be effective. It would lead to lower borrowing costs for consumers and small businesses in some areas for example small business loans. This credit cards would move lower although it probably would not be -- one for one move. Same thing with home equity lines of credit you would see lower rates there what this does not impact severed arm mortgage rates. And if you want to jump start that the housing market in the broader economy. We need to bring mortgage rates down a significant way the Fed cutting that the benchmark Fed funds rate even more. Is he going to do that I haven't understood from the very beginning why mortgage interest why mortgage rates haven't come down. I mean we have this huge housing problem they're all these houses out there they'd need to be bought yet the more you know the rates high would not have historically high but I -- like. It's high relative to the benchmark -- you look at the benchmark ended their ten year treasury note which today is just a shade over 3%. Yet you still looking at fixed mortgage rates of up -- 6% normally we expect to see mortgage rates below 5%. But that's not happening because investors are still very fearful about just how many more defaults are out there and unemployment continues to rise. How many more might be around the corner -- McBride from Bankrate dot com -- thanks."